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tv   Mad Money  NBC  July 6, 2012 3:00am-4:00am EDT

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>> how did that enrich our life? >> thanks for that. tomorrow a guy who visited 50 main street. you're going to love these pictures. and this person sounds like welcome to my world. >> you need to get in the game. >> firms are going to go out of business, and he's nuts. they're nuts. they know nothing. >> i always like to say there's a bull market somewhere. >> "mad money," you can't afford to miss it. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. just trying to make you a little money. my job isn't just to entertain but to educate and to coach. call me at 1-800-743-cnbc. tonight's show is devoted to helping you cramericans avoid some of the most common and money-losing mistakes that investors continue to make. and recognizing misinformation when you see it. the best way to do it is with discipline. [ applause ]
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tonight i'm laying out these rules. to help make money in what can be a bewilderring, confusing and infuriating, certainly irritating market. if you follow my rules you should be able to recognize an opportunity when you see it and manage to avoid losing money when you don't have to. no matter what the circumstances. including a collapsing euro or a slowing in china or even skyrocketing oil prices. [ booing ] [ train wreck ] >> let's get down to business. here's the first one. i don't want you digging in your heels when you're wrong or in the words of investor john keynes, when the facts change, i change my mind. what do you do, sir? one of the easiest mistakes to make, and i know this. why? i have done it myself. i refuse to change my stripes after the facts are in and i have been proven wrong. it's natural to dig in your heels and refuse to change your
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mind when you think you are right but the market is going against you. it's a quick and easy way to lose money. yet mad mailers and particularly twitter followers @jimcramer refuse to believe this principle. i have been blasted into reality over and over and over again when i have dug in my heels in either side. you are always angry when you get run over. you're always willing to take it out on the people on the other side who got it right. the fact that i am open about this process and that i actually read the angry e-mails, o boy, and the tweets and i engage with people, sometimes in a cranky way, has helped me learn stories and learn to invest better. it's also an exercise in pain. [ house of pain ] >> when the e-mails and tweets are the most hurtful i know i'm the most right. for example, i got incredibly heavy volume of hate mail after the market bottom in 2009 and
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then rallied much higher. when the dow jones industrial average was down to 6500, pretty close to the bottom i said the downside was minimum. i said you had to start buying. i didn't say it was done. i said it was minimal. i knew there couldn't be that much more down side because i had a model of where the market would go in case the worst was at hand, including not just a great recession, but an honest to goodness depression. i tallied all the numbers of the dow jones average and presumed every average would go to zero including bank of america, general electric. yep, people consider this a financial because of the big ge capital position. even though it shrunk. citigroup and jpmorgan. i also took into account the dividends at caterpillar and 3m. then added in the potential bankruptcy of alcoa for good measure. all dire assumptions. and you know what?
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even under these ghastly conditions i still couldn't see a low that took us down significantly from where prices were. from the moment i made the call there were people telling me i was crazy and i had no idea what i was talking about. [ booing ] >> a month later with the dow 1500 points higher, these people were still there. still sending me e-mails even more impassioned claiming it was still too soon to tell. told me i lost my rigor, i was no longer at the hedge fund and didn't know what i was doing. if you're making that argument, you're digging in your heels and you should be changing your mind. this is something that's hard for the most emotional investors and traders to come to terms with. believe me. i know. it's crucial if you want to be a better investor than you are. people do it all the time with stocks. we would never allow ourselves to make the same argument about sports. let me use an analogy to drive this point home. would you claim your favorite
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basketball team still had a chance of coming back from behind to win an hour after the game ended? what about a week? how about a month? of course not. if anyone did that they would think you're insane. i'm urging you to apply the same rigger to stocks as you would to sports. at some point you need to acknowledge the game is over and you were wrong. i'm not trying to be glib about this. it's part of the emotional side of investing that while difficult to measure is as important as the intellectual side even if few people in financial media talk about it. it's tough to come out. most people are embarrassed by this stuff. swallowing pride is never easy. the more time you spend digging in your heels the less time you have to take advantage from the new situation and profit from it. how do you know it's time for game over? if you are coming up with excuses and reasons why things
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will go your way it's a good time to ponder why they haven't. oh, remember you have a huge edge on me. i have a national tv show calling the market direction five days a week. i mean, i try. it's easier to say wait and see and not have to eat any crow than it is to admit defeat. you don't have to worry about publically embarrassing yourself. focus on the potential profits and not ego. i'm not a politician either. they can't change their mind without ridicule. if i don't change my mind i lose money. here's the bottom line. when the facts are in and you were proven wrong don't dig in your heels. simply change your mind. ray in georgia. ray. >> caller: yes, sir. >> yo, what's up there? >> caller: i have a question on a stop. i heard you one time say you didn't like to use stops. i'm just trying to figure for us home gamers how you protect yourself if you don't use stops or stops with limits. >> okay. >> caller: what do you think? >> first, think about the flash crash. okay? you're stocked out at some horrible price. who knows what you got? and the market comes back, you got hurt.
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what are you doing here? this is real money. you've got to stay close to your money. you're putting it in some machine's hand when you do that. i want you to say, hey, how's the market doing? i want you to stay close to it. i don't want to go on auto pilot. putting in the stop losses in is auto pilot and i don't like it. stick with the facts. figure out if it's a buy, not a sell. skip in new jersey. skip. >> caller: hey, jim. from avolon, new jersey. big boo-yah to you. >> i'm around the block from you in the summer. what's going on? >> caller: i'd like to know, jim, are national limited partnerships an appropriate investment for ira accounts? >> here's one where i hardly ever do this. forgive me. you have to speak to your accountant for this. there is a penalty that can be paid if you have too much income coming from these in your ira. you need to speak to your accounting professional, because you do not want to run afoul of that penalty. let's go to california for anup. >> caller: how you doing, jim? boo-yah to you. >> real good, man. how about you? how are you doing? >> caller: good. listen, you have mentioned in
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previous episodes that it's valuable to track a group of fundamentally good stocks and buy when prices are down like you might scope out a fancy watch at macy's and buy during the after christmas sales. >> right. as long as it's working. >> caller: is charting the price to earnings per share ratio for an equity would help to more appropriately time a purchase? secondly, tracking the inflation adjusted price to cash flow ratio be a better metric due to earnings? >> we don't have a lot of inflation. i like that idea. that's really, truly rigorous. however, in the end what's going to tell you whether to buy or not is if the market takes the stock down, not the fundamentals. but the fundamentals are intact especially if it pulls back a
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five-day percent. that's when i want you to strike. mules fail at hard trials. don't be stubborn when it comes to your money in this market. when the facts change, don't dig in your heels. have some discipline, change your mind. "mad money" will be back. >> announcer: don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets. send jim an e-mail to madmoney@cnbc.com or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com. [ whistle blows ] [ female announcer ] women are strong. not strong with an asterisk. not strong "but." strong. period.
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welcome back to this disciplinary edition of "mad money." i'm not talking discipline as in crime & punishment or the cat o' nine tails. i mean investing disciplines. rules that help you side step losses and try to make money in a befuddling stock market like this one. based on 31 years of investing insight, price matters. i know. seems obvious. bear with me. it's anything but. price matters so much it means you can buy the stocks of companies you don't like. that's right. ones you don't even like provided they go low enough. in fact for the right price even inferior merchandise is worth buying. as long as it's not deteriorating. some of the best prices have come from holding your nose and
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buying the stocks of companies you never imagined wanting to own in the first place just because they have become so darned cheap. i will never endorse a stock when i think the fundamentals of the company are deteriorating. i won't go near anything headed toward bankruptcy because of a horrid balance sheet. you need to always look at the balance sheet. there is a lot of space between a best of breed company and one that's ununinvestable. this is important. the stocks of the lowliest companies that pass the smell test sell for much more than i would be willing to pay for them. usually because there are too many hopeful investors speculating unwisely and buying barely adequate merchandise because it appears cheap when, in fact, it's selling for the appropriate discount. however, if the price drops far enough it's perfectly okay to buy a stock when you have a low
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opinion of the underlying company. that's what i'm talking about. that's how much price matters. i get enormous volumes of hate mail and vicious tweets on this subject, nrmally from people who are upset that i recommended selling a company that i previously liked. how can you not like it now? it's hot. just as best of breed companies become too expensive, there are levels where companies are too cheap to buy. worst of breed is different from worst. a worst of breed business may not look like much compared to the best of breed competition but at least it can get into the dog show. [ barking ] >> how do you know when the price is right on something you wouldn't otherwise buy? there is a sliding scale here. if you're speculating it's worth looking for companies left for dead. even though they still have a perfectly strong pulse on closer inspection. there is no price you should pay for a company that could potentially go under.
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never, never. if you are convinced it is on the table and the street has it wrong buying an unattractive company at an attractive price can make a lot of sense. think of this. at the bottom of the barrel, at the end of 2011, the regional banks began to break away from the international banks that were hostage to europe. i disliked these banks up to wells fargo and u.s. bank. i had to warm up to them. employment was coming back. housing was getting better. i held my nose and told you to buy though i was blasted for flip-flopping on the bank group. i would leave the show. i would go to twitter and there it was. people say, hey, i thought you hated the bank. look, at certain prices, can't hate. when it comes to higher quality stocks it's hard to find a situation where something that doesn't interest you becomes worth buying because the price is right. there aren't many times a halfway decent stock is hit that
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hard. keep your eyes peeled for companies with equity offerings. here's a way to make money. doesn't take much effort in an environment where so many try to raise capital through secondaries. i'm finding it in some of the european situations. you can find great deals on merchandise that you never would have looked at once let alone twice. these deals happen all the time. i try to get you attuned to them on the show so you can pounce when they come up. just in terms of price on the same day, one day may 13 of 2009, i will never forget it because it was one of the great opportunities i have seen. both ford and bb & t, a southern regional bank with bad loans that looked to me like a survivor if not a thriver they sold stock at a discounted price. ford's secondary priced at a 5% discount to the previous day's close. and a 24% discount to the previous weeks. bbt sold at 10% discount to the
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previous close and a 27% discount to the close the week before. before bbt got the deal done the market was softened. the price was able to spring back after secondary. the company is worth more after raising the money than before because the solvency wasn't in doubt made the secondary offering a steal. both deals immediately made you money. even if you had no prior interest in either ford or bbt and thought they were mediocre at best. at discounts that steep both stocks -- well, the stock price changed my mind. those were great buys. i want you to keep your eye on the price. even less than stellar companies can turn out to be big winners if you get a chance to buy them low enough. the ultimate example of the worst of breed buying opportunity came at the bottom of 2008 with amd, a stock that i have hated almost since the beginning of the show. i have hated it for more than 22 years. i hated it when jerry sanders
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ran it in the 80s and 90s. when it hit two bucks, after the graphic chip division began to take share from intel and nvidia, two much better companies, the opportunity was too great. i called this a hold your nose and buy situation. if you listen to me it could have doubled in a matter of months. sure, you had to trade out because it got too expensive but the trade was made, the money booked. here's a little insight. they don't have you how you made the money when you deposit the winnings at the bank. here's the bottom line. price forces you to make new judgments about bad merchandise. some fixer-uppers have a price you wouldn't pay in another time, stocks can be so cheap they become diamonds. rough diamonds, but diamonds nonetheless. stay with cramer.
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tonight's show is all about helping you better understand the new stock market environment and teach you to analyze stocks so you know when they are telling the truth and you know when you are being mislead. how can stocks, inanimate pieces
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of paper, be honest or misleading? they can't. but the companies behind them can can which brings us to the subject of my next rule. don't take your cue from an inferior company. [ bear growling ] when a worst of breed player says things are bad for the whole industry i don't want you to take it on faith anymore. there are strong and weak players in every sector. the weak players will seek to pin the blame for their failings on the industry. that's what they do. believe them at your own peril. when dell says things are bad and intel says things aren't bad. don't sell hardware or semiconductor stocks based on that. they are competitors and suppliers. don't sell apple and ibm which have little to do with dell and intel other than the fact they are considered tech. this is typical worst of breed behavior. you can't generalize from it. you will never hear a company say we are doing poorly because
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our competitors have better execution. they are eating our lunch. no ceo in his right mind comes out on the quarterly conference call with a shakespearian, the fault is not with us. the guy would be fired. shareholders don't always respond well to that level of honesty. you have to recognize an excuse when you see it. bad news for hewlett packard can be only bad news for hewlett packard. if they say it's raining when you hear from apple or ibm they'll say it must be raining only on hewlett-packard's side of the street. kohl's, only raining on them versus macy's. this keeps happening. you can't assume all companies in the same industry are equivalent. sometimes there isn't pin action which is why i keep my pin sounds going. [ bowling pins ] you can't extrapolate from one company's results to the rest of the industry. that's frequently the case when that's one of the losers. [ booing ] it happens in every industry. not just tech stocks.
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listen, get this. we saw with avon. when the business faltered even the direct sellers herbalife and the tupperware flourished. they were talking about the business model not being any good. procter & gamble said the world was rebelled from high priced products when colgate was running circles around it. we saw this play out in fast food. wendy's lamented that the consumers can't afford a hamburger today but it could tomorrow when mcdonald's said it was selling them by the billions. supermarkets, safeway and super value say the consumer is moribund while costco stole food shoppers away from traditional supermarkets. here's the bottom line. whatever the industry when a company blames poor performance on a tough environment it's probably making excuses. not telling you something that applies to stronger competitors which are likely running circles around it. don't believe the hype. patrick in arizona. patrick.
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oh, let's go to della in california, first. >> caller: boo-yah, jim. thank you for helping my husband and i with our investing. our question is would reinstating the uptick rule help stop the volatility of the market? >> i think that the answer to that is quite simply yes. but the institutions involved with trading are far more powerful than little guys and the institutions want to see quick trading because the fees are good for the companies that trade and also because these guys want to short with impunity. the markets are created to raise capital and as places to invest for regular people. they have been driven out and the market can go up and down quickly. the little guy doesn't trade like that. only the hedge funds do. they need to see the uptick rule be staying away from the market. they liked it abolished. i didn't. now to patrick in arizona. >> caller: hi, jim. >> hey, hey. what's up? >> caller: let's talk about
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diversification. >> sure. >> caller: i understand there are three factors. a sectors, industries and classes. can you tell us which are the most important, which ones are the least important we should use in making a diversified portfolio? >> what i like to do is i use the s&p groupings. for instance if the financials are 15 to 17% that takes care of the group that's banks, insurers, tech 15%. that's hardware, software, industrials, companies that are cyclical in nature. that's another one. obviously the health care drugs, foods. i like to use the s&p groups. those are the ones that make it so i can say point blank empirically this is diversified from that group. ♪ >> sweet little lies. a good craftsman never blames his tools. when a company blames a tough
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environment it's an excuse for you not to buy. stay away, but stay with cramer. ♪ don't believe the hype
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♪ don't believe the hype welcome back to this disciplinary edition of "mad money" where i'm doing what i can to beef up the disciplines to make you a great investor. this is a market full of misdirection like you see on the
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football field. they fake this way, go that way. if you trust what the people on television are saying you're going to get burned. this next rule to paraphrase friend buddy public enemy is about helping you not believe the hype. not all upside surprises are worth getting excited about. when a company announces results and the earnings per share are higher than what the analysts had on average expected then the headlines about it will say it's an upside surprise. right in the headline. stocks are supposed to go up when the underlying company delivers higher earnings than expected. what the headlines call an upside surprise and what impresses the professionals in a quarter are often different things. this distinction can can get confusing. sometimes when the company reports for the wrong reasons the stock will go down. for a regular investor, a home gamer looking at a quarter the market seems arbitrary and
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capricious. if it can't send a stock higher then what can? i'm not talking about situations where management lowers guidance. at the same time it delivers higher than expected earnings. we see it and the stock goes down. that's not what's baffling. when we buy shares of a company we care about, what it will earn in the future not what it's earned in the past matters. no. i'm talking about a different kind of confusion. the confusion that results from the headline writers not drawing a serious distinction -- they can't in a headline -- between a high quality upside surprise, a real one, and a low quality losery almost sleight of hand upside surprise. we like companies that can deliver the first kind. the low quality surprise doesn't attract much interest. how do you tell the difference? simple. remember this word. bun's organic. the other is manufactured. a high quality upside surprise is generated by higher than
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expected sales. organic. which leads to better than expected earnings per share. more people overall are buying the company's product or it could be the company taking market share from competitors or growth coming from an entirely new business. so a real upside surprise tells you the environment has improve particularly one of great magnitude. it's rare for a stock to go down. almost entirely or much better than expected sales of the iphone and the ipod and then the ipad. oh, and of course, as we preach on "mad money," a high quality earnings beat can be accompanied by a dividend increase. that's a terrific tell of the future, perhaps the best of all. once a dividend is increased, it's not easily cut. the top line, the sales number, here are the upside is generated
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not by improved business but management cut costs. maybe they manipulated the tax rate through aggressive but legal accounting, but maybe again they bought back stocks. [ booing ] the latter, the bought back stock earnings surprises, a lot of people are fooled by it. almost all drug companies deliver this slight of hand
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style of surprise. this is the dirty little secret. the reason they don't care, any large enough company with a halfway competent management and combat cfo that's in a predictable line of business can almost ensure it beat the street's expectations, as long as the quarter isn't a bad one. they use buybacks to generate the earnings per share. the amount is entirely at their discretion. it doesn't take anything special, it just tells you that management is screwed enough. >> if creating the upside is that routine, i got to tell you something, believe me, it's not a surprise to the big boys.
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now you can tell what the big boys at the wall street fashion know want to see in a quaufrter and you want make the confused assumption that the headline earnings per share number is all that matters. i need to start with ron in north carolina. what's on your mind? >> caller: i have a question, sir. the multiple ipos that some companies are issuing, does that diminish the common stock price? >> the ipo sets the common stock price. you mean a secondary? >> caller: yeah. >> secondary can depress because the stock will shoot up and the brokers soften it. they announce lit be a secondary, the stock trades
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down, down, down. often times that's a buy of a lifetime. i often like to buy secondaries after the market has been softened. think of omaha beach. they softened it up with the navy and aircraft and send the soldiers in. vincent in colorado, vin vent? >> hi, jim. i'm wondering. i'm a business and economics student at the university of denver in tivoland. based off economics if the one and the real go up and brazil stays strong because of the new middle class there should be a way to take advantage of it. i think firms will be surprised if they switch from exports to internal market. is that true? and if it is, what are the best picks? who's going to take advantage? who are the firms flexible enough to take advantage of the new middle class?
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>> how about cpfl energia. utility companies are growth companies when countries are growing. i would recommend a bank stock but those are dicey. a utility is the way to go. joe in arizona, please. joe. >> caller: a big desert boo-yah to you. i'm a philadelphia born and bred guy living in tucson, arizona. >> lucky for you. you got out. we don't have any teams winning. what's up? >> caller: thanks for the second half of last year recommending to switch into good high quality stocks paying big dividends. i followed your advice. did well by me. felt better in this crazy time to make money. >> particularly when the market was down 19% in september and october. we didn't get hit much at all. go ahead. >> caller: great stocks. my question in calculating the p.e.g. ratio from "getting back to even" how do you calculate the growth rate? current year divided by prior
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year? >> yeah. future year estimates. i look at the step function last year, this year and next year. between this year and next year i care most about. frankly, just so you know i use the street estimates to calculate what the p.e.g. ratio is. with the exception of stocks like apple over the course of the last few years i'm satisfied using street estimates. an upside surprise can lead you to a major downside. don't believe the hype. check the sales before you check the earnings to be sure it's a real and not manufactured surprise. stay with cramer. [ dog 1 ] i am not a sheep... i'm a sheep dog! i don't want to just eat plants. [ dog 2 ] what do i look like? a rabbit? yeah, maybe, but i don't want to eat like one. [ male announcer ] most dry foods add plant protein, like gluten
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one of the most natural misleading mistakes people make is to assume people on tv criticizing a market, telling you to sell or avoid stocks have to be telling the truth. wrong. don't assume commentators who dislike the market are any more honest or less self-interested than those who talk up the market or talk up individual stocks. when we hear someone touting a stock on television we accept the idea that they own it and treat everything they say with a healthy dose of skepticism, suspicion. at least we have learned that much after the volatile last
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decade in the market. we hardly ever reserve that level of skepticism for people who badmouth the market. more often than not investors assume that people who criticize the market either don't have an agenda or must not be pushing one. they've got to be the right guys. they've got the ethic. to most people expressing a negative view in the market is a way to bolster your credibility. to me, as someone who brought in half the profits at my hedge fund by shorting stocks, betting against stocks, this attitude is surreal. people who criticize the market on television or in print or on the web are not necessarily trying to help you. when someone says they like a stock they are branded a tell. when someone says they hate the market how often do you think, wait a second, this person might be shorting the market, underinvested and hoping to knock stocks down to buy them at
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a lower price. perhaps because the idea of shorting stocks is less familiar to home gamers it's much less common to make the connection that some people need markets down. some people need markets to go lower in order to outperform their averages. in my professional opinion there is more chicanery with the short sellers than the longs. that's right. you have to remember that there are people out there who want to push prices down every bit as much as the touts who want to drive them up. the guys who want to drive them up are touts. both sides can be misleading. sure they can be doing rigorous work, the shorts. they can be pressing their truce when it's most convenient meaning a short is going against them. the other issue is while money managers come on television and have to disclose positions in stocks they never have to tell you, i'm under invested because i'm lagging getting left in the dust. i have to try to knock the
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market down to get myself an entry point. if they don't own anything and aren't short anything there is nothing to disclose but they might have an interest in knocking stocks lower because of how they are positioned. [ punching bag ] you're never going to hear about it. at any given time there are people in the industry who would benefit from a broad stock market decline and be more happy than to go on television and make the case that the decline will happen and encourage you to get out while you can. [ sell, sell, sell ] as stocks become stronger and the bull market gets going all those short with more short positions than long ones are underinvested meaning they have less in stock and more in cash are now underperforming. they are becoming more and more desperate. money managers who have been left behind by the market and
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competitors feel like cornered rats getting ready to be butchered by a feral feline. a lot of hedge funds can't afford even one year of underperformance. i know this stuff. i was in the business for 14 years. i know it. no one else comes on and has a show. you have to have a good, decent record if you want to explain to them how you barely made money at a time when stocks everywhere were soaring and still have a business by the time you are through with the explanation. you have to be careful because when stocks are strong many hedge fund managers, the ones with the fewest scruples plant stories and try to spread as much negativity to get stocks down so they can buy or because their shorts need to work were them. a lot of this in 2008, 2009. i wish it wasn't the case. it would be wonderful if we lived in a world where everyone was honest and no one tried to manipulate the market. since that's not the world we live in, the best way i know how to protect you from this kind of chicanery is by shining a light and making sure you know what to watch for. the bottom line, remember to
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always be on your guard because the people badmouthing the market aren't one bit more altruistic or honest than the people who come on tv shows and tout stocks also for their own benefit. "mad money" is back after the break. what if you had up to 28 days of beautiful ? you can have up to 28 days of beautiful, smooth skin, with veet wax strips. veet hair coating technology removes hair as short as 1.5 millimeters... ... and leaves your skin smooth for up to 4 weeks. try getting that with a razor. with veet you'll always be putting your best skin forward.
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veet. what beauty feels like. also try new veet high precision facial wax for salon-quality smoothness that lasts. with head & shoulders? since i should have been engaged...three christmases ago. since before...texting. since my grunge days. remember them? trying not to. [ female announcer ] head & shoulders. live flake free. trying not to. another cup of coffee? how long is this one going to last? forty-five minutes? an hour? well... listen. 5-hour energy lasts a whole lot of hours. take one in the afternoon, and you'll feel alert and energized 'til the cows come home. it's packed with b-vitamins and nutrients to make it last. so what's it going to be, partner?
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5-hour energy. wise choice. 5-hour energy. hours and hours of energy. foil your house to reflect the sun's rays back into space to try to reduce climate change. but there are easier ways to go green. like turning off the lights when you leave a room. you could save the tin foil for leftovers the more you know.
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let's catch up with mad mail and do some mad tweets. this one is from bheid15. you mentioned tracking the stocks with recent 52 week highs and buying on pull backs. what are the exceptions? >> i got this idea from leon cooperman from goldman sachs who said try to buy stocks at the time. he said try to buy stocks that are back 5 to 8% on a pullback because of the market going down. not because of the fundamentals in the stock. remember, the stocks on the new high list are hard to come by. as long as they are going down
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not because of fundamentals of the company but because of the market you may have a good buy. some stocks pull back because they have brought up too much and those are interesting, too. remember, i really and truly want you to be sure the easy way is to be sure it's the market that brought it down, not the stock itself with a press release or analyst downgrade. here's one from txu99. are dividend stocks a crowded trade? all right. this drives me crazy. jeremy siegel, one of the greatest investors ever. professor at wharton. he's done a multiple year study 10, 20, 30, 40 years about dividends and how they are responsible 40 to 50% of the stock's price increase. it's only people who trade ridiculously and high frequency. these are the people worried about this kind of nonsense, okay? they are the ones who are trying to game short term trades. i don't want you doing that. i want you to buy the dividend
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and reinvest the dividend. take a look at the performance of the dow in 2011. 5.5%. why? the yields were higher for the dow stocks than anybody else. if you reinvested you had an 8% return. how can that be considered crowded? how about smart? here's mad mail. boo-yah, cramer. this is from jerry in rhode island. i have had trouble selling a stock. it's hard to sell winners. i now sell call options on my stocks and if they go past the strike price it takes the decision out of my hands. it limits my upside but i like the automatic nature of it. am i crazy? yes, you are. no one wants to hear this. i'll tell you straight. any strategy that cuts off the upside but doesn't limit the down side is a stupid strategy. people like covered calls, the additional income. i say no. if something great happens to your stock and you wouldn't have bought it unless you thought something great would happen you don't participate. if something terrible happens that's just terrific.
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you're short the call, you can't take action. you're afraid of a takeover. i've got to tell you, i know smart people who sell covered calls. it is a sucker strategy, to me. i buy stocks because they are going higher. i don't want to cap my upside. here's one from schultz in arizona. jim, how much gold should i hold as a percent of my portfolio? since i started the show i feel between 10% and 20% should be your benchmark. when gold flew up all the way to 1800 in 2011 i thought, you know, let it pull back. you can even sell some. you have to keep the core position. why? i don't regard gold as stock. it's a currency. alternative currency to the fiat currency, the printed currency that we have in the united states and that they have in europe. i have to tell you, i trust gold, i don't trust paper. that's why between 10% and 20% makes sense. here's one. hello. i watch your show regularly and now i'm interested in investing. i would like to get big gains but i'm afraid i won't pick the
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right speculative stocks. what should be i looking for? only one speculative stock out of five. we are limiting the amount of speculation because speculation keeps us interested. makes us pay attention but it can be dangerous. i like to speculate in biotech, my chief one. i try to find bio tech companies that have more than one drug so if they have a failure you're still in the game. those have been the most fruitful. all you have to do is check the big winners like even a company like regenera that started in 2005 and had a monster run through since the show began. that's the speculative biotech stock i look for. here's one from sharon in maryland. jim, thanks for a great show. following your strategies i moved most of my holdings into high yielding stocks and mlps. when is it time to sell the high
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yielders? if the shock prices weren't so high i would be inclined to sell in the winners. this one may sound glib, but i don't mean to. when the high yielders are no longer high yielding, sell them. trim them back. when the market brings them down you buy them. that was the strategy we used in 2009. 2010 and 2011 and it worked. those were some of the roughest years ever. believe me, it will work in the future. thank you, sharon. thank you, tweeters and e-mailers. stick with cramer. [ male announcer ] if you think any battery will do, consider the journey of today's athletes. their training depends on technology. and when it takes a battery, there are athletes everywhere who trust duracell.
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you just got a dose of discipline i think is going to save and make you a lot of money. don'no

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